The Wrong Target

"If we're going to create jobs, the first thing we have to do is make sure that George W. Bush loses his." John Kerry's refrain elicits raucous cheers wherever he goes, and it's echoed by the other Democratic presidential contenders. All share a similar and compelling critique of Bush's failure: More than 3 million private-sector jobs have been lost, record surpluses have turned to record deficits and millionaire tax cuts have given away the store with little to show for it. Bush will end this term with the worst jobs record of any president since Herbert Hoover and the Great Depression.

Bush trumpets the trend, not the reality: The third quarter showed significant economic growth, and jobs are finally starting to reappear. Profits, stock options and stocks are up, benefiting mainly the rich, who have also done well thanks to Bush's tax cuts. But trickle-down economics doesn't work. What average people worry about is still in recession: Income is down, jobs are down since 2000, health-care costs are soaring, school budgets are getting cut, retirement savings haven't recovered from the stock-market crash and public college tuition rose 14 percent this year alone. Working families, meanwhile, are paying more in state and local tax and fee increases than they will receive from the Bush tax breaks.

The critique is powerful but not sufficient. For Democrats to challenge Bush successfully, they must do more than show that he hasn't brought the economy back; they must show how they would. September 11 has insulated Bush from blame in many voters' eyes; they are reluctant to blame the commander in chief unless they hear a compelling alternative. In 2002, Democrats failed to offer that alternative, and the outcome turned on other issues, like Iraq, homeland security, flag and family. For the Democrats to do better this time around, they will have to voice what they are for, not just what they are against. And that will take some work.

To begin with, Democrats need to get past their single-minded focus on Bush's deficits. Right now, most are in thrall to Rubinomics -- a theory named for Robert Rubin, Clinton's universally respected treasury secretary, that holds that balancing the budget reassures financial markets, lowers interest rates and frees up private investment. From the rising liberal Howard Dean to the fading conservative Joe Lieberman, the focus is on the staggering budget deficits Bush has helped create. "I pledge to the American people that a Dean administration in Washington will balance the budget," says Dean. We must restore "fiscal discipline" and end "the Bush administration's slow-growth, high-debt polices," says Lieberman.

But this traditional banker's view of fiscal probity -- once a staple of the Republican Party -- doesn't make much sense in an economy still recovering from high unemployment, excess capacity and an investment overhang from the dot-com bubble. Interest rates are already near record lows. Nearly nine million people are looking for work; an estimated 2 million have dropped out of the labor market. Businesses are still tightening their belts. Household debt is at record levels. The federal government should be running a deficit to get the economy going.

The green-eyeshade approach to budgets is bad politics as well. Deficits, pollsters tell candidates, are a symbol of Bush's failure, and railing against them insulates Democrats from the "big spender" tag and draws a stark contrast between Bill Clinton's success and George W. Bush's failure. But a focus on deficit reduction can leave Democrats tongue-tied about how they would put people back to work and reluctant to talk about the looming deficit that we can't afford: the deficit in public investments vital to our economy.

The last Democratic candidate to rail against record budget deficits was Walter Mondale. While Ronald Reagan was celebrating America's morning and promising that growth would balance the budget, Mondale went after the president's wastrel borrow-and-spend policies. "I'm going to raise your taxes," Mondale promised the country -- and then went on to lose every state outside of Minnesota and the District of Columbia. Contrast this with 1992, when, in the face of George Bush Senior's staggering deficits, Clinton promised to "put people first," calling for large investments in cities, education and universal health care. Growth and upper-end tax cuts would bring the budget back to order.

Democrats would be wise to pay less attention to Rubinomics and more to the man from whom they sprang. Rubin argues that the problem with Bush Junior's tax cuts is that the short-term deficits are too small and the long-term ones too large and destabilizing. What's more, the money should have been spent on public investments that would put people directly to work rather than given away in upper-end tax cuts that produce far fewer jobs. The contrast would be between those tax cuts that didn't trickle down and public investments that would put people to work while addressing real needs.

This contrast shouldn't be hard to draw. Nearly all the leading Democratic presidential contenders have investment plans in mind (although many of them are token at best). So far, however, the candidates have argued more about how much of the money they'd revoke than about how they'd invest it to put people to work. Democrats would fare far better talking about jobs, health care and other kitchen-table concerns rather than deficits, contrasting Bush's trickle-down tax cuts not with hair-shirt fiscal responsibility but with a people-first investment agenda.

Democrats also remain reluctant to challenge the country's unsustainable trade deficits, which will exceed $400 billion this year -- nearly 5 percent of our gross domestic product. Over the last 20 years, we've gone from being the world's largest creditor to its largest debtor, with foreign debts about 25 percent of our current GDP. Asian central banks now own almost $700 billion in U.S. Treasury bonds. They've been financing our trade deficits and helping to keep the dollar up, while capturing entire industries.

Bush clearly understands how politically potent this is. Last year's September rollout featured Iraq; this year it was a "manufacturing jobs" campaign. He dispatched his treasury secretary to tell the Chinese to revalue their currency, promised to enforce a "level playing field" and defended his steel protection measures against European complaints.

But fake gestures -- Bush's "manufacturing czar" still has not been appointed -- won't come close to addressing a trade imbalance that the International Monetary Fund, Alan Greenspan, Rubin and the august Bank for International Settlements all call destabilizing and unsustainable.

So why haven't the Democrats piped up? Although Kerry and Lieberman have tried to paint Dean and Dick Gephardt as protectionists, all of the leading presidential contenders, in fact, oppose trade accords that don't contain core labor standards and environmental protections. Likewise, all pledge to enforce our trade laws. Some, particularly Dean and Lieberman, are assertive in challenging China. All, meanwhile, vow to repeal tax loopholes that reward companies for moving jobs abroad.

Worried about being tagged as protectionist, particularly in liberal financial circles, Democrats haven't highlighted Bush's failure on trade. None has registered the change in elite opinion: that the trade deficit can't be sustained. None has indicted the administration for its passivity.

The trade deficit now poses a clear and present danger. By ignoring the looming crisis, Bush leaves America's fate to the market. The market's solution is a dramatic decline of the dollar, most likely triggering a deep downturn here and a recession across the globe. That's why fabled investor Warren Buffett has announced that, for the first time in 75 years, he is moving to invest in European currencies.

The country needs creative leadership and informed international cooperation, but Bush has failed the test. Rather than alienating our allies over Iraq, the president should have been working with the European Union and Japan to generate greater growth there. That and real debt relief for the less-developed countries would give us the ability to sell more abroad and help us manage our way out of these deficits. With an unimaginable $100 billion trade deficit with China alone, this country also will have to stop pretending that mercantilist China is playing by the same set of rules. The Chinese aren't likely to lower their currency. So the Democrats should call for America to ensure -- like the Europeans have -- that trade with China continues to increase but is far more balanced, and simply not allow them to keep selling $6 for every $1 they buy.

This policy package is also good politics. This election is likely to be decided in the industrial Midwest -- Wisconsin, Minnesota, Ohio, Pennsylvania, Michigan, West Virginia -- where workers and communities have been devastated by the loss of manufacturing jobs. They want to know where the jobs are coming from. They know the economy is global, but they're looking for someone who will stand up for them. Taking on the trade deficit -- even from an internationalist global-growth perspective -- puts a Democratic candidate on their side, in contrast with Bush, whom they already sense is the president for the multinationals.

Many voters in the battleground states, particularly non-college-educated males, are alienated from Democrats on issues of culture and national security. If they conclude that neither party can make the economy work for them, they are likely to vote on other issues -- flag and family, military, God, guns and gays. A Democratic candidate who is prepared to fight for a people-first growth agenda can highlight Bush's greatest vulnerability. A Democratic candidate who promises to raise taxes to balance the budget would sound like Walter Mondale -- and may not fare much better.